j u l y / a u g u s t 2 o1 1
How Health Care
Can Save or Sink America
The Case for Reform and Fiscal Sustainability
Peter R. Orszag
Volume 9o • Number 4
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How Health Care Can
Save or Sink America
The Case for Reform and Fiscal Sustainability
Peter R. Orszag
Rising health-care costs are at the core of the United States’
long-term fiscal imbalance. The Congressional Budget O⁄ce (cbo)
projects that between now and 2050, Medicare, Medicaid, and other
federal spending on health care will rise from 5.5 percent of gdp to
more than 12 percent. (Social Security costs, by comparison, are projected to increase from five percent of gdp to six percent over the same
period.) It is no exaggeration to say that the United States’ standing
in the world depends on its success in constraining this health-care
cost explosion; unless it does, the country will eventually face a severe
fiscal crisis or a crippling inability to invest in other areas.
The problem is not limited to the federal government. Over the
past 25 years, cost increases in the national Medicare and Medicaid
programs have roughly paralleled (and actually been slightly below)
cost increases in the rest of the health-care system. These trends drive
a wide range of problems. State governments have had to divert funds
from education to health care, which is partly why salaries for professors
at public universities are now often 15 to 20 percent lower than those
Pe ter R. Orszag is Vice Chair of Global Banking at Citigroup, an
Adjunct Senior Fellow at the Council on Foreign Relations, and a columnist for Bloomberg. He was Director of the White House’s O⁄ce of
Management and Budget in 2009–10 and Director of the Congressional
Budget O⁄ce in 2007–8.
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How Health Care Can Save or Sink America
at comparable private universities. Meanwhile, the rising cost of
employer-sponsored health insurance has squeezed take-home pay
for most U.S. workers at the same time as median wages have stagnated
and income inequality has increased.
Another dimension of the problem involves the variation of healthcare costs across the United States. A recent analysis by the Medicare
Payment Advisory Commission found that spending in higher-cost
areas of the United States (that is, those in the 90th percentile ranked
by cost), even after controlling for various factors, was 30 percent
higher than in lower-cost areas (those in the 10th percentile). This
substantial variation is undesirable both because the high-cost areas
unnecessarily drive up total costs and because the results are often
haphazard for patients. Indeed, higher costs typically do not equal
better care—and sometimes they mean the opposite.
In March 2010, the United States attempted to address these
problems by passing a historic health reform act. The new law set up
health exchanges through which individuals can purchase insurance,
required those without health insurance to buy it, and created subsidies
to oªset part of the cost of insurance, especially for moderate-income
households. The bill also reduced payments from Medicare and Medicaid to providers, imposed a new tax on high-cost insurance plans,
and created a set of new institutions intended to bolster quality and
reduce costs throughout the system.
Even before it passed, the health act became mired in political
controversy, and its future remains at risk. Opponents have filed legal
challenges to the law, the House of Representatives has voted to repeal
it, and the funding necessary to administer it is in jeopardy. To be fair,
the new law has many shortcomings—including its failure to seriously
reform the medical malpractice system. It does, however, create new
infrastructure that can improve the quality of treatment and cut costs.
For this infrastructure to succeed, though, the tools created by the
health act must be applied forcefully, rather than undermined or
abandoned. Even then, more drastic measures may ultimately be
needed. The United States must make a fundamental change to its
health-care system, transforming it into one that emphasizes evidence
and quality, one in which providers have better tools and much stronger
incentives to deliver value.
fore ign affairs . July /August 2011
[43]
Peter R. Orszag
strategies for saving
Health-care costs rise for a variety of reasons, and there are
essentially four conceptual approaches to constraining them. The first
approach is to simply reduce payments to providers—hospitals, doctors,
and pharmaceutical companies.This blunt strategy can work, often quite
well, in the short run. It is inherently limited over the medium and long
term, however, unless accompanied by other measures to reduce the
underlying quantity of services provided. If only Medicare and Medicaid
payments were reduced, for example, providers would shift the costs to
other patients and also accept fewer Medicare and Medicaid patients.
This would make the approach politically nonviable.
The second approach is direct rationing, whereby the government
decides which services will be oªered and which will not.This approach
is not remotely politically viable in the United States, where people
have grown accustomed to access to new technologies and procedures
and where antigovernment sentiment is strong.
The third approach—consumer-directed health care—could be a
useful component of a cost-reduction strategy, but its benefits are
often exaggerated. This approach emphasizes giving consumers more
information and control over their health care and stronger financial
incentives to reduce their own spending. The goal is to ensure that
patients have a greater stake in keeping costs down through increased
copayments and other forms of cost sharing.
If most health-care spending were driven by discretionary decisions
among relatively healthy people, this approach could cut costs dramatically. But health-care costs are instead heavily concentrated among a
small number of relatively sick patients.The top five percent of Medicare
beneficiaries ranked by cost, for example, account for more than
40 percent of total Medicare spending, and the top 25 percent account
for more than 85 percent of total costs. Financial incentives can have
some eªect on these people’s decisions, but under virtually all consumerdirected proposals, these patients would still be covered by generous
third-party insurance for their high-cost procedures—which is, after
all, the whole point of insurance.
Consumer-directed measures would have a substantial impact
only if they lowered the cost of the care delivered in the most expensive
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How Health Care Can Save or Sink America
cases. Yet some research suggests that consumer-directed health
approaches could make high-cost cases even more expensive, because
chronically ill patients facing copayments for their medicines would
skip some doses, requiring even more expensive treatment later on.
(Ironically, those who advocate consumer-directed reforms often
oppose advance directives that spell out individuals’ care instructions
for late in life—tools that might be more eªective than any other
consumer-directed change.) Since the share of total costs most aªected
by consumer-directed health-care incentives is relatively modest, no
one should expect this approach to dramatically reduce overall healthcare spending.
Nonetheless, the consumer-directed approach is at the heart of a
reform of Medicare put forward in April by Representative Paul Ryan
(R-Wis.), chair of the House Budget Committee. Under Ryan’s approach, Medicare The potential for a
would be transformed into a “premium support” plan, whereby the government would better combination
pay the premiums for private health insur- of cost and quality
ance plans chosen by beneficiaries. Ryan’s
plan appears to save substantial sums for the is not theoretical.
federal government, but it is far less clear that
it would substantially reduce overall health-care costs because it may
not do enough to aªect high-cost cases. Indeed, a preliminary analysis
of the Ryan plan by the cbo found that total costs would actually
increase—by an astonishing 40–67 percent by 2030—because the
benefit of having more consumer “skin in the game” is limited and
because private plans would have higher administrative costs and less
negotiating leverage with providers than Medicare. The goal should
not be to simply move costs around; it must be to reduce them overall.
The fourth approach, the provider-value approach, is more promising. Instead of reducing costs indirectly by having patients put
pressure on doctors, the provider-value approach focuses on giving
doctors more information and making changes so that payment is
based on the quality of the services they provide—not the quantity.
The goal is to boost the use of evidence-based medicine and narrow
the variation in treatment methods across the United States, improving
outcomes and lowering costs by reducing the number of expensive
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[45]
Peter R. Orszag
but unnecessary procedures. Data from the Dartmouth Atlas of Health
Care suggest that the variation in treatment is greatest when there
is little consensus about the appropriate treatment for a given condition, such as whether a patient with lower back pain requires surgery.
The variation is much smaller when evidence-based guidelines exist,
such as the recommendation that a hospital administer aspirin to a
person suªering a heart attack. The underlying premise behind the
provider-value approach is that in high-cost and chronic cases, which
account for the bulk of overall costs, the patient typically agrees to the
care recommended by the provider—so that the provider’s recommendation is most often the care that winds up being delivered. In
the end, therefore, fundamentally reducing health-care costs requires
that providers alter their recommendations. (Emphasizing prevention and wellness may also help reduce the incidence and severity of
high-cost cases, but the evidence to date suggests limited success in
reducing costs from such measures. Besides, a shift toward prevention
and wellness requires many of the changes in information and incentives
embodied in the provider-value approach.)
The potential for a better combination of cost and quality is not
theoretical. The United States already has examples of institutions,
such as the Mayo Clinic, that deliver high-quality health care at
substantially lower costs than do other institutions. Such exemplary
institutions tend to use information technology intensely, examine
best practices rigorously, pay attention to doctors’ financial incentives,
and focus on the nitty-gritty of management and the use of procedures
such as checklists to minimize mistakes. All of which is easy to say
and hard to do.
containing costs
The health-care legislation aimed to address various gaps in
insurance coverage, especially for those who were uninsured. And it
aimed to do so without increasing (and, ideally, along with reducing)
the budget deficit under conventional accounting methods—while
putting in place the infrastructure to reduce long-term growth in
health-care costs through the provider-value approach. The legislation
includes three basic categories of measures aimed at containing costs.The
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How Health Care Can Save or Sink America
first category involves blunt reductions in Medicare reimbursements.
The legislation reduces the growth rate in provider reimbursement
rates (by $196 billion over ten years), reduces payments to private insurance companies through the Medicare Advantage program (by
$136 billion), and reduces payments made to hospitals for treating
uninsured low-income patients (by $36 billion). These changes save
money for the federal government, but they do not represent the type
of structural cost containment necessary for the long term.
The second category of cost-containment measures involves private
insurance. For example, the legislation made changes aimed at reducing
unnecessary paperwork and moving toward uniform electronic standards
to be used by all insurers (so that coding and other tasks are easier),
which should yield an estimated savings of tens of billions of dollars a
year. More important, the health bill includes an excise tax on “Cadillac”
insurance plans—plans that will cost more than $27,500 for families
or $10,200 for individuals in 2018, when the tax comes into eªect.
Plans exceeding these thresholds will face a 40 percent tax on the excess
cost, creating a strong incentive to redesign them to be more e⁄cient
and come in under the threshold. Since the tax rate is eªectively punitive, the vast majority of the tax’s projected revenue will not come
from the insurance companies (who are ostensibly responsible for
paying the tax). Instead, it will accrue as companies shift their compensation packages away from tax-advantaged health plans and toward
taxable wages, which then generate income and payroll taxes. And
since the threshold is indexed to increase with the consumer price
index, which tends to rise more slowly than health-care costs, the tax
will exert strong pressure on private insurance companies to keep their
costs down so their premiums stay below the threshold.
The legislation’s third and arguably most important category of
cost containment involves a variety of structural measures to prod
Medicare to lead the way toward the provider-value model of health
care. Some private insurance firms would like to move in this direction
to save money, but the private market remains too fragmented for any
individual firm to engineer a wholesale change in provider incentives.
Given Medicare’s prominent role in the health system, it is necessary
to put the program at the center of the eªort to control costs. The act
does so through both specific measures (such as imposing penalties
fore ign affairs . July /August 2011
[47]
Peter R. Orszag
through Medicare on hospitals with high rates of infection) and institutional changes (such as the creation of new bodies with the power
to reduce cost growth over time without the need for new legislation).
the mistakes
The legislation was an impressive, perhaps even improbable,
achievement, passed in an era of intense political polarization. It lays
the basis for future structural cost containment while expanding
coverage to tens of millions of Americans. But it is not perfect. The
act’s shortcomings fall into two categories: those that have to do with
appearance and those that have to do with substance.
The first mistake of messaging was made during the summer of
2009. At the time, the only bill in the public domain was the House
legislation, which, although it expanded coverage substantially, did
very little to contain structural costs. (It had plenty of reductions in
reimbursements to providers, but again, that approach is ultimately
not sustainable.) The administration nonetheless applauded the bill.
The final legislation improved on the House bill’s eªorts to contain
structural costs, but by the time the act was passed the next year, it
was too late. The damage had been done, and it proved di⁄cult to
shift the prevailing public and elite opinion that the measure failed
to reduce spending.
The second such mistake involved the cbo, which is the o⁄cial
body charged with assessing the budgetary and economic impact of
legislation. Given the complexity of reducing health costs, the cbo
has been understandably reluctant to conclude that any individual
measure would be hugely eªective in doing so. As a result, there is essentially no policy that the cbo will score as exerting powerful downward pressure on aggregate health-care costs. (It is willing to score
some policies as reducing federal health spending substantially, but
mostly because they shift costs to other parts of the health-care system.)
Barack Obama’s presidential campaign had promised massive cost
savings from reform, including $2,500 a year per family. But such savings were never going to be confirmed by the cbo under any scenario.
And since the House bill was relatively weak on cost containment
anyway but was the first version to receive a public cbo analysis, the
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How Health Care Can Save or Sink America
contrast between Obama’s campaign promises and the cbo’s forecast
proved something of a shock to the public. These two mistakes of
image may have been an inevitable part of the process of enacting the
legislation; after all, getting the act passed was extraordinarily di⁄cult.
But they nonetheless fed the widespread impression that the act will
do little to reduce cost growth.
The biggest substantive shortcoming of the legislation involves
tort reform. The academic literature generally concludes that medical
liability laws do little to raise costs, although some recent studies suggest modestly larger eªects. The literature also suggests that variation
in the medical malpractice laws across the United States explains very
little of the variation in health-care costs. What this literature largely
misses, however, is the fundamental problem with the laws’ standard
of “customary practice”—the norm that protects doctors if they can
be found to have treated their patients the way most other doctors in
the area do. This basis for malpractice creates a strong contagion
eªect among doctors, because a doctor’s legal liability is minimized
by doing what the doctor down the hallway is doing.
The traditional approach to tort reform involves imposing some
limit on damages. The problem with such an approach, however, is
that it does nothing about the customary-practice problem. A far better
strategy would be to provide a safe harbor for doctors who follow
evidence-based guidelines. Under this approach, a doctor would not
be held liable if he or she followed the recommended course for treating a specific illness or condition under guidelines put forward by
professional associations such as the American Medical Association
or the Institute of Medicine. By failing to move forcefully in this
direction, the health reform act missed a major opportunity.
criticisms and concerns
Much of the criticism that the health legislation has attracted,
however, has been misplaced. For example, one prominent critic,
former cbo Director Douglas Holtz-Eakin, complained in a New
York Times op-ed, “Gimmick No. 1 is the way the bill front-loads
revenues and backloads spending. That is, the taxes and fees it calls
for are set to begin immediately, but its new subsidies would be deferred
fore ign affairs . July /August 2011
[49]
Peter R. Orszag
so that the first 10 years of revenue would be used to pay for only
6 years of spending.” But the only reason one should be concerned
about such an imbalance is if it created a fiscal hole in the tenth year
and thereafter. That is not what the legislation does: it reduces the
deficit not only over one decade but also in the tenth year alone. A
more legitimate concern is that the legislated savings may be undone
by a future Congress.
Another concern is that employers will drop coverage for certain
employees and force them into the health insurance exchanges created
by the act, thereby raising costs for the government, since coverage
subsidies are available in the exchanges but not through employersponsored plans. The cbo has predicted that this will rarely happen:
it estimated that by 2019, the legislation will reduce the number of
people with employer-provided coverage by only three million. But
critics have charged that the penalty the law imposes on firms that do
not oªer coverage ($2,000 to $3,000 per worker per year) is too small
to act as a real disincentive.
Two factors suggest that this concern may be exaggerated: first,
most firms consider coverage to be an important part of their
compensation packages, meant to attract good workers, and second,
the simple analysis ignores the eªect of the tax subsidy for employersponsored insurance. In eªect, if firms drop their coverage, they
lose the tax preference on that component of their compensation
packages, and that is often large enough to overcome the other incentives
to drop coverage. Indeed, Massachusetts, which adopted a similar
approach in order to expand coverage, saw a net increase in employer
coverage. Nonetheless, how social norms develop among employers
will be important. A July 2010 survey by Fidelity Investments found
that two-thirds of large employers were not seriously considering
eliminating their health plans because of the new law. But 36 percent
of those firms said they would consider eliminating coverage if other
firms did.
Although employers may not eliminate health-care plans en
masse, they could start dropping high-risk workers by designing health
plans that encourage these employees to purchase insurance on the
exchanges.This is a legitimate concern. If employers altered their plans,
this could create a spiral eªect, in which those employees buying
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How Health Care Can Save or Sink America
insurance on the exchanges would be disproportionately high-risk
patients, raising premiums and defeating the purpose of risk sharing.
The cost to the federal government of subsidizing coverage in the
exchanges, in turn, could become unsustainable.
Another substantial concern involves the eªect of the legislation
on local hospital markets. Over the past two decades, these markets
have become increasingly concentrated, raising prices as competition
among providers has been reduced. The health legislation, if anything, will exacerbate this trend by inducing a new round of mergers
among clinics, hospitals, and practices. According to Thomas Greaney
of Saint Louis University School of Law, this process has already
begun.“The risk that dominant providers and
dominant insurers may exercise their market The health-care system
power, individually or jointly, has never been
greater,” Greaney warns. Hospitals and other of the future needs
providers are already engaged in significant to be dominated by
lobbying to relax a variety of older rules limiting health-care monopolies, especially in fee-for-value payment.
conjunction with the so-called accountable
care organizations (acos) encouraged by the act. Acos are meant
to band doctors and hospitals together to provide comprehensive
treatment for patients. In the words of Jon Leibowitz, chair of the
Federal Trade Commission, “If accountable care organizations end
up stifling rather than unleashing competition, we will have let one
of the great opportunities for health care reform slip away.” The
Justice Department and the Federal Trade Commission are trying
to minimize this risk by instituting a mandatory review process to
evaluate the largest proposed acos.
A final concern involves the class Act, a voluntary national
long-term-care insurance program created by the bill. There is a serious risk that healthy people may be reluctant to join the program,
whereas those who most need long-term care will be eager to do
so, jeopardizing the idea of a broad and stable risk pool. The only
solutions may be to make the purchase of such insurance mandatory
or to require employers to provide it by default unless employees opt
out—a strategy that has worked well in boosting participation rates
in 401(k) plans.
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Peter R. Orszag
moving to quality
The health-care system of the future must be much more qualityoriented than today’s is. As the economist Victor Fuchs has underscored, accomplishing that requires changes in three areas: information,
infrastructure, and incentives. When it comes to information, the
U.S. health-care system is on the cusp of a dramatic development that
could substantially expand evidence-based care. Over the next decade,
hospitals and doctors will begin to adopt more information technology
than ever before—a breakthrough that has been promised for many
years and whose time is finally coming. Although many doctors still
find it awkward to make the leap to electronic medical records, today’s
systems based on tablets are less disruptive to their work than laptopbased ones. At the same time, the stimulus bill contains subsidies for
the meaningful use of new information technology in medicine,
which will be followed by penalties after four years for a failure to
adopt such technologies. Systems like these give doctors more accurate
and timely data on patients, protect against adverse drug interactions, and
reduce paperwork.
The data produced by that technology could also expand medical
knowledge about which treatments do and do not work. A new marketplace of data should develop. Promising steps toward this future have
already been taken, including eªorts such as the Health Data Initiative,
a partnership between the Institute of Medicine (a part of the National
Academies) and the U.S. Department of Health and Human Services
that aims to boost the use of health data across public and private
providers. In 2014, Medicare will begin releasing de-identified claims
and data about doctors that will help patients more eªectively select
physicians and hospitals.
If the true potential of these data is to be realized, appropriate
privacy protections must be put in place and the research itself must
be funded. To lead the eªort, the legislation created the PatientCentered Outcomes Research Institute, a nonprofit organization that
will help prioritize and fund new research into the comparative
eªectiveness of various treatments. It will disseminate the results of
these studies to help doctors and patients make better-informed healthcare decisions. Ideally, professional medical societies will increasingly
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How Health Care Can Save or Sink America
rely on this research to issue more evidence-based protocols. The data
gathered and the protocols based on them could then flow back into
the health system through software that helps doctors make clinical
decisions. Such a setup would be substantially more potent if it were
combined with the type of evidence-based safe harbor under the tort
laws discussed earlier: if the software could tell doctors not only what
the best practices were but also that a malpractice safe harbor existed
for those following such guidelines, the practice of evidence-based
medicine would become much more common.
The second way to move the health-care system forward involves
infrastructural reform.The most pressing need is to encourage providers
to increase the coordination of care, and the leading idea for driving
such coordination is acos. Acos are designed to tie doctors and
hospitals together financially and give them incentives to deliver
better care to their patients on a coordinated
basis. Many questions remain about how The legislation should
exactly acos will work, but the draft regulations governing acos issued by the admin- reduce the long-term
istration in the spring of 2011 have begun to fiscal gap facing the
provide some of the answers.
The Premier quest initiative, a volun- United States by roughly
tary project among hospitals focusing on 2–3 percent of GDP.
evidence-driven improvements in their
performance, has highlighted the promise of information and incentives.
By emphasizing evidence-based medicine and coordination across
providers, the project has succeeded in narrowing the variation in
practice norms, improving quality, and reducing costs.
The final prong involves incentives. The health-care system today
is dominated by fee-for-service payment; the health-care system of
the future needs to be dominated by fee-for-value payment. The
diªerence is crucial: one payment system drives up quantity; the other,
quality. The health bill takes some steps, albeit modest ones, toward
creating a system based on paying for quality. For example, it creates
penalties for hospitals with high rates of hospital-acquired infections
and other avoidable conditions by reducing Medicare payments for
hospitals in the top 25 percent of the distribution for such problems.
It includes a variety of pilot programs involving bundled payments,
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Peter R. Orszag
which provide incentives to coordinate care for patients with
chronic illnesses by paying a fixed sum for treating a specific condition
rather than paying for each individual treatment. The legislation
also imposes a penalty on hospitals with high rates of readmission;
roughly 20 percent of Medicare patients are readmitted within 30 days
after a hospital discharge. The lack of coordination in handoªs such
as hospital discharges drives up costs (by increasing readmissions)
and reduces quality (patients rarely prefer an unnecessary stint in
the hospital).
All these measures will never be enough to substantially constrain
the growth of health-care costs on their own. It would be shocking if
they were, since the provider-value approach necessarily involves an
ongoing, evolutionary process of continuous adjustment. That process
is even more challenging in the United States’ polarized political environment, which makes it harder for legislation to respond nimbly to
new developments and information.The success or failure of the health
legislation in constraining costs will therefore hinge on how well a
number of new institutions created by the law will work, that is, whether
they can respond flexibly but forcefully to changes in the health-care
system over time—and without requiring new legislation to do so.
One of those institutions is the Patient-Centered Outcomes
Research Institute, which was designed to analyze drugs, medical
tests, and other treatments and provide updated information on them
for physicians and patients. The bill also created an organization
called the Center for Medicare and Medicaid Innovation, which will
develop and evaluate approaches to making Medicare and Medicaid
beneficiaries’ care higher quality and less expensive. The act gives the
U.S. secretary of health and human services the authority to scale to
the national level pilot projects conducted by the center that prove
successful, without the need for new legislation.
The new institution with the most potential by far, however, is the
Independent Payment Advisory Board. President Obama fought hard
for ipab, over strong opposition from Congress, which saw the board
as usurping its power. When ipab starts up in 2014, it will comprise
an independent panel of medical experts charged with devising
changes to Medicare’s payment system. In each year that Medicare’s
per capita costs exceed a certain threshold, ipab will be responsible
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How Health Care Can Save or Sink America
for making proposals to reduce this projected cost growth to the
specified threshold. The policies will then take eªect automatically
unless Congress specifically passes legislation blocking them and the
president signs that legislation. In other words, the default is that
policies to constrain cost growth and improve quality will take eªect.
These three new institutions—the Patient-Centered Outcomes
Research Institute, the Center for Medicare and Medicaid Innovation,
and ipab—represent a powerful constellation in theory, especially in
conjunction with acos. The question is whether they will prove to
be so in practice—a question with critical implications for the fiscal
future of the United States.
a fiscally responsible future
Despite popular impressions to the contrary, the new health
legislation would significantly bend the curve of Medicare spending
over the next several decades—assuming it is implemented in full.
Medicare is only part of federal health spending, however. What about
overall federal health expenditures, including the new subsidies to
oªset the cost of coverage for moderate- and middle-income families?
Projections from the cbo suggest that the added cost of covering millions
more Americans will initially exceed the cost reductions included in
the legislation but that eventually the pattern will be reversed.The cbo
projects that the transitional year will be 2028, after which the legislation will begin to modestly reduce overall health spending by the
federal government.
And what about the budget deficit, including both spending and
revenue? The bill includes a variety of measures that increase revenue,
such as the excise tax on high-cost insurance plans. Altogether, if fully
implemented, the legislation is projected to reduce the long-term
fiscal gap facing the United States by roughly two to three percent
of gdp, or about one-quarter to one-third of the underlying fiscal
imbalance. Much of this eªect will be driven by the excise tax on
high-cost insurance plans and the impact of ipab, measures that were
excluded from the initial House bill. As the International Monetary
Fund recently concluded, “The eªects on the fiscal gap of the final
healthcare legislation depend on the ipab’s success at controlling ex-
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Peter R. Orszag
cess growth in health spending going forward. If the ipab is successful,
the fiscal gap could be about 2 percent [of gdp] smaller. . . . However,
if the ipab fails to contain excess growth, the recent health reform will
on net worsen slightly the fiscal gap, according to our estimates.”
In other words, if the legislation is implemented eªectively—and
especially if ipab and the excise tax on high-cost insurance plans live
up to their promise—it could significantly reduce the nation’s longterm fiscal imbalance. A big gap would remain, but the gap would be
even larger without the health bill.
Major challenges remain for the health bill. The Supreme Court
might find the individual mandate unconstitutional, Congress might
underfund the implementation of the bill, and entities such as ipab
might have di⁄culty finding individuals willing to go through the
Senate’s confirmation process. If implemented aggressively, however,
the health bill holds the promise of moving the United States toward
a better health-care system—one that not only leaves many fewer
people uninsured but also, through the provider-value approach,
improves quality and constrains costs. There are still many obstacles,
and even stronger medicine may ultimately be necessary to limit future
cost growth. And there is still room for much-needed improvements
to the health bill, especially on tort reform. But much of the debate
in the United States is still about the core approach adopted in the
bill, not how to improve it.
The only prominent alternative that has been proposed is the
consumer-directed one, and there is no doubt that this approach could
supplement the provider-value one. Many opponents of the health
legislation, however, are either implicitly or explicitly banking on a
consumer-directed approach’s ability to fix health care by itself. That
is not a plausible path forward, since such an approach would likely
do little to address high-cost cases and therefore do little to contain
overall costs.
In the end, there is no credible path to reducing the long-term
fiscal imbalance in the United States other than directly addressing
high-cost cases in health care. The best bet, then, is to implement
and improve the provider-value provisions in the health legislation,
not abandon them.∂
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